Board Member Selection Guidelines

My colleague Firas Raouf has recently written several blog posts about building a cohesive Board of Directors.  If you haven’t yet checked them out, I’d highly recommend them.

A crucial aspect to building a best-in-class board for an expansion stage technology company (or any company) is the board member selection process. The consequences of choosing poorly can be immense, especially if an expansion stage company has its eye on a potential IPO.  Choosing a director wisely can create tangible benefits–enhancing shareholder value, while ensuring increased accountability.

Increased regulation and legislation in recent years, including the Sarbanes-Oxley Act have also dramatically impacted the selection of directors. Expansion stage companies should become familiar with the disclosures and requirements that they may very well be faced with once they IPO, and implement processes that will help them comply with those disclosures for any directors that they believe will be on the board at the time of an IPO. The days of simply recruiting the CEO’s best friend or golfing buddy are long gone…

Some simple guidelines to follow:

1. Gain an understanding of the requirements that your company may need to comply with if it is contemplating an IPO in the foreseeable future (criteria for independent board members, criteria for financial experts, etc.)

2. Consider implementing a formal nominating committee within your company’s existing board. This nominating committee might also include your company’s general counsel. The CEO should not take full responsibility for choosing new directors.

3. Map out the selection process and timeline. Gain the consensus of the nominating committee.

4. Assess the current board composition. Assess current member independence, retirement plans, transition plans, etc. Identify skill gaps based on company strategy. A new director should be able to take an expansion stage company to the next level by adding specific knowledge and skills, not merely a name.

5. Develop a director specification, outlining specific qualities, strategic experience, business experience, prior board experience, time requirements and expectations that your company’s nominating committee feel necessary. Make sure to also consider cultural fit with the current board.

6. Define the search strategy. Will you use a search firm? Will you leverage your investors’ networks? Make sure that whichever search method you choose, that you are working with someone who is knowledgeable of current requirements, and is experienced with board challenges. Check references if you are using a search firm (you will want to ensure that every aspect of your selection process is beyond reproach).

7. Before launching interviews, screen candidates for conflicts (competitor, vendor, customer, industry, company-specific). Filter for pre-existing relationships with the CEO or other board members.

8. Once your company has a short list of final candidates, conduct THOROUGH background checks. This can’t be stressed enough. A board member must be beyond reproach. Beyond criminal, financial and reference checks, take the time to perform thorough research for every company that the candidate has been associated with. Were there any improprieties of any kind while that candidate was associated with that company? Many nominating committees will also hire an investigative firm to perform a thorough blind background check.

This is just a start, but should help to ensure that your company selects the best possible director.  I’ll write more about how to assess board members in my next post.

Stay tuned for more from out of the back office…